UMW concerned about Patriot bankruptcy

CHARLESTON, W.Va. -- United Mine Workers officials are concerned that Patriot Coal's bankruptcy reorganization plan will ultimately include efforts to weaken working conditions for active miners and benefits for retirees.

In its bankruptcy filings, Patriot has complained of "substantial and unsustainable legacy costs," which company officials identified primarily as health-care benefits and pension payments.

Earlier this week, UMW lawyers sought to have the reorganization case moved from U.S. Bankruptcy Court for the Southern District of New York to Southern West Virginia, where they say such issues can be more appropriately handled.

UMW lawyers noted that Patriot's bankruptcy filing in New York is based at least in part on two New York-based subsidiaries, both of which were created only in June.

"Nobody mines coal in New York," the union's lawyers said in court papers. "Significant issues in this case -- whether mines are shut, whether employee wages and benefits are cut -- will all directly affect the West Virginia economy while having no such effect in New York."

On July 9, St. Louis-based Patriot filed for bankruptcy, seeking court permission to reorganize itself to address mounting financial problems. The company listed $3.57 billion in assets and $3.07 in debt.

Last year, Patriot produced 22 million tons of coal in Appalachia. The company operates large surface and underground mines in West Virginia. UMW officials say Patriot has 2,000 active union members in West Virginia and Kentucky, along with more than 10,000 retirees and an additional 10,000 dependents, most of them in West Virginia, Indiana, Illinois, Kentucky and Ohio.

"The UMWA will bring every resource to bear on behalf of our membership as this process unfolds," union President Cecil Roberts said in a prepared statement.

In the company's bankruptcy filings, chief Patriot financial officer Mark Schroeder noted that the company is responsible for benefits to more than three times the number of retirees as Patriot currently employs as active miners.

Most of those retirees came from Peabody Coal, from which Patriot was formed in a corporate spin-off transaction in 2007, or from Magnum Coal, an Arch Coal spin-off company that Patriot bought in 2008.

"Especially in an era of declining demand and price for coal, there is a mismatch between the cost of [Patriot's] legacy obligations and [its] ongoing ability to generate revenue," Schroeder said in a sworn statement. "[Patriot's] return to long-term viability depends on [its] ability to achieve savings with respect to these liabilities."

Patriot noted that while only 11 percent of the nation's coal miners currently work under UMW contracts, 42 percent of Patriot's miners work under such agreements.

The company complained that the UMW's national contract, which Patriot works under, "contains many provisions that restrict the ability of signatory employers to deploy labor and operate their mines in a flexible and cost-effective manner, which puts signatory companies at a cost disadvantage with their union-free competitors."

In late May, prior to its bankruptcy filing, Patriot announced a major management shakeup that included promoting to president Ben Hatfield, who was previously CEO of non-union International Coal Group and an executive with non-union Massey Energy.

Patriot said its bankruptcy was prompted in part by the recent major downturn in the U.S. coal market. Patriot said, "Alternative sources of energy have become increasingly attractive to electricity generators in light of declining natural gas prices."

The company also cited "more burdensome environmental and other government regulations," noting its recent agreement to begin treating selenium pollution at its surface mines a move it said "will cost hundreds of millions of dollars."

When it entered that selenium settlement in January, then-Patriot CEO Richard Whiting said the deal was "a strategic response" to a pollution problem the coal industry needed to deal with. "We believe the consent decree serves the interests of both the public and our stockholders," Whiting said at the time.